What is decentralized finance? (DeFi)

A new, alternative financial system is emerging as the nations are headed towards recession and economic instability. Decentralized finance is digital and operates over a public, permissionless blockchain ledger.



As compared to the existing financial system, this is free, impartial, and available to anyone with an Internet connection. This is completely transparent, can be audited in real-time, and the rules are completely written in open-source code files.

Traditional Bank

This mechanism gives the masses new ways of generating, investing, and distributing money, independently from banks. The promise of the system is to process, transform, democratize, and to give access globally to financial services. Term DeFi stands for "decentralized finance," which is the system of financial applications built above the blockchain system.


DeFi can also be explained as the movement promoting the creation of many types of financial services and products by using decentralized networks and open-source software. The concept is to build and run financial DApps over and above transparent and trustless platforms such as unauthorized blockchain and other peer-to-peer protocols (P2P).


Currently running three most substantial functions of DeFi are:

  • Creating monetary banking services like issuance of stable coins.

  • Provide P2P (peer-to-peer) borrowing and pooled lending platforms.

  • Like DEX, DeFi enables advanced financial instruments and tokenization platforms, derivatives, and other financial products.



What are the Benefits of Decentralized Finance?

Decentralized finance uses three main Blockchain principles to unlock the potential for liquidity and growth, improve financial stability and accountability, and facilitate an interconnected economic system that is standardized.


Programmability

Extremely programmable smart contracts automate the implementation and allow the new financial instruments and digital assets to be created.


Immutability

The Tamper-Proof coordination of data across a decentralized blockchain architecture increases safety and audibility.


Interoperability

composable software stacking of the blockchain promises the convergence and complementary functionality of DeFi protocols and applications.




Protocols & Platforms of DeFi

Just as Uber does not have a vehicle fleet or Airbnb of real estate, these financial platforms can be set up without mobilizing capital or be subject to restrictive regulations. Since 2018, we have witnessed the emergence of decentralized finance, or DeFi, based on MakerDao's stable coin DAI, a cryptocurrency that features close to fiat currencies.


Enthusiasm spread around DeFi focuses on the idea of money legos – the idea that everyone is able & have permission to develop, change, combine, connect, or build on existing DeFi products. DeFi protocols are modular to stack on top of each other to build a more dense interoperable system. DeFi greatest vulnerability can be the open interdependence feature because if a key component like DAI is unstable or compromised, the entire DAI ecosystem will crash.


Decentralized finance has many advantages over traditional financial services. The implementation of financial applications or goods is much less complicated and safe through smart contracts and distributed systems. Additionally, several DApps are being built that are offering reduced running costs and entry obstacles. The DeFi movement is transforming conventional financial products into the open-source and decentralized environment, eliminating the need for brokers, reducing overall costs, and greatly improving security.


Computer Code

Language to develop Smart Contracts

A smart contract is an automated arrangement in which the terms of the agreement between the buyer and the seller are written into code lines directly. Indeed a decentralized distributed blockchain network contains code and agreements. Smart contracts allow trustworthy agreements and transactions among the anonymous parties without involving any external regulatory authority.


Here is the list of top 4 programming languages to develop smart contracts:


Solidity

With Ethereum blockchain leading the charge, numerous alternative blockchains are using Solidity compatibility to deploy smart contracts on their network. Smart contracts implemented on the Ethereum network can be easily transferred to the alternative networks.


C++

With over 4.4 million developers around the globe, C++ is considered as the most general programming language. Its ability to scale and make resource-intensive applications to work smoothly is one of the most critical attributes. The EOS blockchain supports smart contracts on its Web Assembly virtual machine. Smart contracts can be programmed in all languages, which can be compiled in Web Assembly (WASM).


JavaScript

JavaScript is a dynamic and lightweight, object-oriented programming language. Brendan Eich developed JavaScript. JavaScript forms one of the three Web design foundations along with HTML and CSS. JavaScript can generate smart contracts on the NEO blockchain.


Golang

Golang is a Google-developed open-source programming language. It supports concurrent programming, allowing multiple processes to run simultaneously. It is partially based on the C language syntax. For developers, it is a simple language. Golang is estimated to have 800,000 developers worldwide.




Conclusion

In comparison with conventional finance, the DeFi market is small but has expanded rapidly since the last year. Financial DApps will achieve a genuinely decentralized financial reality in which the traditional markets operate perfectly together with blockchain digital assets.




Resources

List of the best online blockchain courses.

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